Waitakere City Applauded For Land Initiatitive

The Waitakere City Council ( Auckland New
Zealand ) is pushing the Auckland Regional Council to allow
it to release more residential, commercial and industrial
land ( NZ Herald “Waitakere City to free up land” – 19
February 2006 ) following a Bayleys Real Estate Research
Report identifying severe shortages of available land within
the City. Waitakere City has a current population of
approximately 200,000.

“Mayor Bob Harvey and the
Waitakere Council people are to be applauded for this
initiative”. said Hugh Pavletich, co author of the recently
released 2006 Demographia International Housing
Affordability Survey.

This housing affordability
Survey of 100 major metropolitan areas of the six nations
surveyed ( New Zealand, Australia, United States, Canada,
Ireland and the United Kingdom ) rated the Auckland urban
market ( of which Waitakere is a part ) as “severely
unaffordable”, with a median multiple rating of 6.6 ( median
household income $57,800 – median house price $383,300 ).
This is the 15th worst performance of the 100 urban areas
and six nations surveyed.

To qualify as “affordable”,
urban areas need to achieve a median multiple of 3 or below.
24 of the 100 urban areas surveyed by Demographia currently
achieve this affordability ranking. The Survey also found
that most urban areas of Australia and New Zealand were
historically affordable.

“Housing prices should be no
more than three times incomes” said Mr Pavletich, adding
“The Waitakere Council needs to release land to ensure that
this is achieved again, within a reasonable time”. New
Zealand is one of the least urbanised countries in the
world, with just an estimated 1.42% of its land area
urbanised”. ( refer attached “Estimated Urban Land Area
Selected Nations Table” – Demographia. )

Pavletich is
of the view that every Local Authority in New Zealand needs
to assess its own housing affordability performance using
the Demographia approach, set housing affordability goals
and ensure they are maintained. Land releases based on land
pricing changes then need to be carried out on an annual
basis to ensure artificial scarcities do not occur.

“The only true measure of scarcity or abundance is price.
If raw peripheral urban land ( prior to subdivision works )
exceeds the adjoining rural, this is a sure sign that the
Local Authority is not doing its job properly. Its
essentially rewarding land speculators and punishing the
poor when this happens” said Mr Wendell Cox, the other co
author of the Demographia Survey.

ENDS

Pavletich Properties Limited

PO Box 13
439

Christchurch

New Zealand

12 February 2006

Mr
Bob Harvey

Mayor

Waitakere City Council

Em
Bob.Harvey@waitakere.govt.nz

Auckland

New
Zealand

Dear Bob,

UPDATE ON THE HOUSING
AFFORDABILITY / LAND USE REGULATORY
ISSUE

INTRODUCTION

As you are no doubt aware, the
writer is the instigator and co author of the Demographia
International Housing Affordability Survey. The 2006 2nd
Edition www.demographia.com of the Survey was released 23
January 2006 and to date there have been around 60,000
copies of it downloaded. It is particularly pleasing to my
good friend and co author Wendell Cox and I, to see the
level of constructive debate and discussion the Survey is
generating globally.

The major reason however for this
letter, is simply to update you on how I see this broad
issue and in how things could move from this point. It is an
extremely complex one (although the key issues are not) and
by no means do I have all the answers. At best I consider
myself a “student’ of it and tend to think that it is too
complex to ever really become an urban “expert” as
such.

But I was indeed heartened to see your Council
take the initiative in getting more land released in an
endeavour to better meet people’s needs. Waitakere Council,
is with justification, seen as a “trendsetter” in Local
Government both here in New Zealand and Australia. From my
perspective as a “student’ on these issues, it appears to me
that more creative thinking goes on within the Waitakere
Council than most others.

It is to be hoped that the
Demographia Survey clearly sets out factually the serious
issues we need to deal with and that these artificial land
scarcity problems need to be dealt with effectively. Somehow
– the regulatory mechanisms need to be put in place to
ensure these scarcities do not creep up on us in the
future.

These ‘artificial” property booms are hugely
damaging of course, particularly as property prices become
de coupled from incomes. It’s just fine of course if
property prices go up PROVIDED THAT this is based on a solid
foundation of rising incomes. Its pretty dumb stuff if one
is living in a 100 year old hovel with an artificial value
of a million bucks – and think that one is “wealthy”. This
could better be described as “delusional
wealth”.

IDEOLOGICAL PLANNING THE ROOT OF THE
PROBLEM

The “root of the problem” as I see it, is
“ideological planning” – and the few zealots (my estimate
just 10% of them within Australia and New Zealand) hell bent
on ramming their dystopian fantasies down the throats of
their fellow land use regulators, politicians and the wider
public. In my experience most of them are within the
tertiary planning schools and the larger regulatory
authorities. They wouldn’t last five minutes in the smaller
authorities, where elected representatives and senior
management understandably are closer to what’s going on.
These ‘ideologues” are simply unaware (and obviously
couldn’t care) that the key role of government at all
levels, is to foster community cohesion – not persistent
damaging community conflict and tension.

It is
interesting to see that the Planning Institute of Australia
is well aware of this huge problem, as outlined within tis
excellent Report of last year (available from its website).
The problems of low morale and high attrition rates within
the land use regulatory field are by no means confined to
Australia.

If the “dense thinkers” are so keen on
living like battery hens, I think that is just fine (I’m all
for choice Bob). They really do need to think seriously
about moving to East Germany, where I understand one million
of those 65 square meter slab development apartments have
been vacated since reunification back in the early
1990’s.

DISCIPLINE REQUIRED WITHIN THE REGULATORY
PROFESSION

It’s long overdue for the Resource
Management Law Association and the Planning Institute to get
together and sort this serious issue out once and for all.
The (supposedly environmental effects based) Resource
Management Act was enacted in 1991 after all. As far as I
can tell, there are simply no professional disciplines
within this important field. Try forwarding a complaint with
respect to a Planners performance to the NZ Planning
Institute to see what happens. Numbers of these people
directing land use policy within the regulatory authorities
are not even members, I understand.

In turn these
ideologues create the regulatory environment, which attract
the “protectionists” within the property field, to act as
their “cheerleaders”. I see this as the “unholy alliance”,
with the former being on a “power trip” and the latter
egging them on, to shut the competition out, generate easy
monopoly profits and take the wider public to the cleaners.
I am sometimes surprised in how elected representatives at
both local and central government level are not more alert
to this nonsense. As the “peoples representatives” they need
to be.

In my experience (over a quarter century as a
property practitioner / industry leader) the vast majority
of the people working in the land use regulatory field are
fine, dedicated people. Some of them I am fortunate enough
to say are personal friends. The ideologues create massive
problems for these people of course.

Land use
regulatory administrators in my view, need to better focus
on assisting others in meeting peoples needs, whilst
protecting the environment, with reasoned and reasonable
environmental standards. They should never see themselves as
“urban experts” as they have neither the practical expertise
or training for this work, These people need to realise too
that we do not appear in Australia and New Zealand to have
economists with any expertise in “urban economics”.

THE
LACK OF URBAN ECONOMISTS

I would suggest you read some
of my recent public comments (Google News – “Demographia”
and “Hugh Pavletich”) with respect to economists and their
“perceptions” of the urban property market. I have also
“dished it up” recently to the Property Council of New
Zealand, Real Estate Institute of New Zealand, Local
Government New Zealand and the Planning Institute of
Australia.

It would be fair to say, I think, that the
2nd Edition Demographia Survey findings on monetary issues,
that interest rates only have a minor (at best) impact on
the property market, whilst “supply” is the main driver.
This will come as quite a shock to most of them. I am sure
that the 2006 Demographia Figure 8 Page 13 is now copied and
framed on the wall of the offices within Treasury and the
Reserve Bank. With all due respect, I was pleased that the
New Zealand Reserve Bank Governor, Dr Bollard in his latest
announcement Thursday 26 January “lightened up’ on housing
market comments and spoke instead of New Zealand’s “global
challenges”.

I am not at all too sure why economists
seem to have such an inadequate understanding of the urban
property market. Some have suggested to me that because of
the hugely varying individual urban areas regulatory
influences, they can’t “model” it. Much of what passes for
“property commentary” is barely disguised marketing, dressed
up as research. I suspect a lot of this “misinformation” is
due to the reality, that many of these people have simply
academic qualifications with no practical experience
operating within the property market.

So what I’m
saying here Bob is – why not let the economists get
themselves up to speed first on “urban economics” – without
expecting the same of the land use regulators at this stage.
The latter have enough to deal with in getting some
“disciplines” in to their own field.

THE OBSOLETE
THINKING OF BELTS AND BOUNDARIES

I do hope that when
you and your Council people discuss the “land issue” with
your colleagues at the Auckland Regional Council, that the
whole issue of “Urban Growth Boundaries” and “Green Belts”
is discussed as well. My view is that this thinking is
obsolete and hugely damaging (you only have to read the
Demographia Survey to see that) and that the thinking
instead needs to move towards “Green Space” and the further
creation of this to enhance our urban
environments.

With “belts” or “boundaries” all that
results is that “sprawl” is converted to “splatter”. And of
course the former is considerably less disruptive and less
expensive than the latter. People after all have to live
some place. The only really limiting factor is “economic”.
Those in the regulatory field need to better appreciate just
how much the economic cost is of “urbanising” say a square
kilometre. It is massive. And it is not as though New
Zealand (and Australia even less so) is heavily urbanised
(around 1.4% of NZ total land area ; 0.25% Australia – refer
Demographia Table with today’s Media Release).

THE NEED
FOR FACTS BASED RESEARCH

You will note with the
Demographia Survey, that it is strictly “facts based” – and
that we have deliberately kept clear of ideology. We
desperately need to see more “facts based” research
associated with Local Government issues. From this Survey,
we would like to see national organisations such as the Real
Estate Institute of New Zealand and Local Government New
Zealand working together, using the Demographia approach
(i.e. median multiples) to assess both the current and
historic housing affordability levels, within each Local
Authority area of New Zealand. The International Demographia
Survey is an “alive” document (electronic on the web) and is
capable of being constantly updated and added to. We would
“link through” to these national or state surveys (provided
they follow the Demographia methodology strictly) as they
are generated. Already the State Division of one of the lead
Australian property organisation is in the process of
completing a survey of this nature.

There is also an
urgent need for national research to be undertaken on the
differences in land pricing of the peripheral land of our
urban areas. Specifically, the differences in land pricing
between the peripheral raw urban (i.e. prior to any
subdivision works) and the adjoining rural. Note the “rural”
that is too close to our urban areas influenced by
potentially future urban zoning must be avoided though. So
particular care would need to be taken to ensure it is “true
rural” pricing. Again, it seems likely that Local Government
New Zealand and the Real Estate Institute of New Zealand
could be the best placed to undertake this work.

NEW
ZEALAND CONSTRUCTION COST PROBLEMS

You are probably
aware that New Zealand construction costs are excessive. It
is my view (as a long term industry practitioner) that this
has been caused by persistent land supply strangulation in
this country. Remember the waves of construction people who
left our shores through the 1980’s and 1990’s for Australia,
because work “dried up” here? Australia has been a huge and
welcoming beneficiary of these people.

To give you some
idea of these “pricing differences” lets consider standard
quality housing. In Western Australia it is about $Aus450
per square metre, the eastern seaboard $Aus550 to $Aus650
and New Zealand in the order of $NZ950 - $NZ1,100. The New
Zealand Centre for Housing Research commissioned DTZ NZ Ltd
to research this issue back in 2004. A report “Housing
Costs” is available from the CHRANZ website. It was however
regrettably “shallow” and did not go much past Quantity
Surveyors “assessments” in getting to the bottom of these
massive differences, for the extraordinary reason of
“commercial confidentiality”. Let’s hope we see
authoritative and exhaustively detailed research, so that
these pricing differences are clearly identified.

I am
sure that these land scarcity generated problems have
severely damaged the delicate structures and systems within
our residential construction sector. These are likely to
take many years to “heal”, but will only occur if the land
supply issue is sorted out first. This will then give the
hugely competitive residential construction sector the
necessary confidence to re establish these systems and
structures. This would be “hurried along” by Australian
residential production builders (the best in the world)
having the confidence to establish here as well.

If you
can find the time, I would suggest reading the book “The
Power of Productivity” by William Lewis of the McKinsey’s
Global Institute, where his organisation carried out
exhaustive research of construction industries around the
world. It was found that Australia was one of the two best
global performers. In the context of Australia, my
understanding is that the Western Australian residential
construction sector is the most innovative and
productive.

We should not lose sight of the other “best
performers” globally identified as “affordable” (24 urban
markets) within the latest Demographia Survey. In Houston
for example (with a median multiple of 2.9 – Auckland in
contrast 6.6) new starter homes WITH LAND are being sold for
around $US800 per square metre building all up. This means
that a new 100 square home on say a 700 square metre lot /
section sells for $US80,000 – a 200 square metre house for
$US160,000. It’s well worthwhile checking out the Houston
Association of Realtors website www.har.com and click
through “Houses for Sale” and check out their Monthly Market
Reports and “Subdivision Research” down the right hand side.
You will note that vast tracts of existing housing are
priced at $US800, $US700, $US600 per square metre and even
less, I am sure that we would find this repeated through the
south, inland east, central United States and Canada. They
would have to – in achieving median multiples at or below 3
within the Demographia Survey. While of course these figures
could be described as “surprisingly good”, one needs to bear
in mind that the United States production residential sector
is not as productive as the Australian one. Various studies
I have read indicate that the Australian industry is in the
order of 10 – 20% more productive than the United States
one.

AUSTRALIA IS DEALING WITH THE LAND PROBLEM

I
am confident Australia is well on the way to working through
these “land issues”. The Melbourne M2030 Plan looks like
it’s on the way out and it has created massive political
problems for the Brack’s Government in Victoria. Just prior
to Christmas a further 25 years supply of residential land
was released in Melbourne. Further land releases are
underway in Adelaide, Sydney and Brisbane and I have every
expectation that this is just the start of it in Australia.
So in reality, New Zealand has no option other than to “get
on with it”. Unless if course, we want to see increasing
migration to Australia.

CONCLUSION

It is
particularly heartening to see the change in attitudes
occurring both here and in Australia to the seriousness of
this issue. People are generally aware that urban property
prices are “artificially inflated” and the social costs this
is inflicting. The property organisations on both sides of
the Tasman are in my view now acting far more responsibly,
than was the case just a year or two ago. Again, the
“booster” talk has died down and they appear to be more
willing to play a constructive role, in working with others
in solving this problem. Particular note must be made of the
Real Estate Institute of Australia and the Property Council
of Australia. I expect their New Zealand counterparts to
follow this lead and others too.

I do trust these few
points are of assistance Bob as you and the people at the
Waitakere City Council work with others in finding solutions
to these issues.

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